Dayton opposes use of bankruptcy to avoid pension payments

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Governor Mark Dayton says he strongly opposes former Governor Tim Pawlenty’s suggestion to declare bankruptcy so Minnesota could avoid its pension liabilities and other debts. Pawlenty, now a potential presidential candidate, told a group of New Hampshire Republicans Monday that the idea is worth considering as a way to avoid pension liabilities.

Dayton, who serves on the Executive Committee of the National Governor’s Association, said he supports a statement issued Tuesday by Washington Governor Chris Gregoire and Nebraska Governor Dave Heineman, Chair and Vice Chair of the NGA.

“The nation’s governors strongly oppose federal proposals to provide states with bankruptcy protection,” the statement said.

“Allowing states to declare bankruptcy is not an authority state leaders have asked for nor would they use. The mere existence of a law allowing states to declare bankruptcy only serves to increase interest rates, raise the costs of state government and create more volatility in financial markets.”

While Minnesota faces a $6.2 billion deficit in the next biennium, Dayton said he is committed to balancing the budget, as required in the State Constitution, using a fair and balanced approach. Filing for bankruptcy to avoid pension liabilities would not be a viable option for Minnesota, he said in a news release from his office.

“Taxpayers expect government to be responsible with their money, investing in essential government services like education and infrastructure and that is what we must do to get Minnesota working again,” Dayton said. “State government will be held accountable for how we balance the budget, and not to file for bankruptcy to avoid our financial obligations.”

Dayton pointed to the 2010 Pension Reform Act as an example of proactive reform on the part of the state to create cost savings while protecting Minnesota retirees. The Pension Reform Act, which received bipartisan support in the Legislature and was signed into law by Pawlenty, was a proactive alternative to bankruptcy for states in financial crisis. The measure lowered pension costs by nearly $6 billion.

The 2010 Pension Reform Act includes provisions to increase vesting periods, increase employer and employee contribution rates, lower deferred interest rates for inactive members and lower refund interest rates. At the end of FY2010, the Minnesota State Retirement System, the Public Employees Retirement Association and the Teachers Retirement Association combined have lowered their unfunded liability by over $5.5 billion.

A pension is a contractual obligation between workers and their employer and the pension system does not add to the state’s deficit, Dayton noted in his news release. Ninety percent of retired public workers continue to live in Minnesota after retirement, and their spending stimulates the state economy and adds jobs in local communities, he said.